The ongoing debate about inflation has taken a new turn, with Transportation Secretary Pete Buttigieg’s recent claim about the impact of the Inflation Reduction Act coming under scrutiny.
Buttigieg, serving in the Biden administration, asserted that inflation has decreased since the act was passed in August 2022. He pointed to this legislation, which includes provisions for clean energy, healthcare cost reduction, and tax reform, as evidence of progress in curbing inflation. However, Gordon Johnson, an analyst at GLJ Research, has challenged Buttigieg’s claim, arguing that inflation continues to rise, albeit at a slower pace.
Johnson presented a chart illustrating the trajectory of inflation, highlighting that it remains significantly elevated compared to the trend observed since March 2020. He criticized Buttigieg’s statement, emphasizing that inflation is still running at 11.4% above the trend line and that the government’s actions do not seem to address the issue adequately.
Johnson attributed the persistent inflation to excessive government spending and regulations. He contends that these factors hinder productivity, leading to larger budget deficits and necessitating the Federal Reserve to create more money to buy Treasury securities.
As a solution, Johnson calls for substantial government spending cuts to effectively curb inflation.
The recent slowdown in inflation, from over 9% in the summer of 2022 to 2.5% in August, has enabled the Federal Reserve to reduce interest rates. However, some experts argue that the sticky nature of inflation, partly driven by lagging data in the owners-equivalent rent component, could fuel renewed inflationary pressures as the US dollar weakens amidst rate cuts.
The upcoming release of the personal income and spending report for August, including the Personal Consumption Expenditures index (PCE) – the Fed’s preferred inflation gauge – will offer further insight into the current state of inflation.
